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Macroeconomics

20 November 2019

US BRICKS AND MORTAR RETAILERS GETTING IT WRONG 

Home Depot, Nordstrom, Macy’s and Kohl’s all have one thing in common; their share prices fell like a stone yesterday on Wall Street. You could say it was a retail blood bath.

Kohl fell the most in three years, as the company reported weaker-than-expected sales numbers and cut its full-year profit forecast for the second time this year. The same happened at Home Depot, which fell almost 6%, also on a weaker sales outlook and a clear miss in third-quarter figures. They too cut their annual growth outlook for a second consecutive time. Both Nordstrom and Macy’s fell in sympathy with the two other companies, but Macy’s woes were exacerbated as the company admitted there was a serious data breach of its webpages back in October.

The big culprit for the demise remains the same, i.e. online sales competition. Recent retail sales data showed that in October sales at non-store retailers were up 14.3% year-on-year. In other words, Amazon is still gaining market share from the other retailers. Ironically, the bricks and mortar retailers have to turn to their main competitor. Kohl’s is touting a partnership with Amazon permitting customers from Amazon to return bought goods to Kohl’s, thereby hoping to increase client traffic. They seem to be paying Amazon for the privilege of increasing footfall, well aware that they are actually paying the company which is destroying them. Kohl’s CEO admitted that the focus is now firmly on millennials. That is the age cohort that has grown up with the internet and does not feel the need to leave the house to go shopping. Unfortunately for Kohl’s, it seems that ship has sailed.

You could wonder whether these unhappy retailers say anything about the upcoming shopping season. The answer is no, because the rise in online sales is very sound. According to recent surveys, US consumers would be likely to raise their shopping budget by over 4% again this year, which is line with previous annual trends.

Hence, the share losses seen at some of the retailers signal the change in behaviour between the different generations. As the early millennials become middle-aged consumers, this is where the purchasing power really is.